M-Pesa (Kenya) has proven to be a very effective financial solution for the unbanked. The key element that distinguishes M-Pesa from other options is that it is designed specifically for the economically and socially excluded in Kenya. It allows users to make money transfers that do not require credit cards or bank accounts. In fact, people can only access the service by making use of their cell phones or through SMS messages.

Here’s an example: take a person in the third world. She might be too poor to have access to an ATM machine and to pay for the service is a long way. If she wants to make an international transfer using her cell phone then she will have to take advantage of the M-Pesa service. Her cell phone receives a text message alerting her that money has been transferred from her account to an account at the recipient’s bank.

Once the person has identified a mobile number as the recipient, she makes use of the M-Pesa solution. In her local language, the recipient uses the service to send her a text message. In return, the sender uses the M-Pesa service to send her an SMS message with her local currency.

Of course, it is a not a “case study solution” per se. There are a number of pros and cons to this type of financial solution. Let’s talk about them.

The most obvious reason for using mobile financial services is its low cost. To be sure, a user can make more than she could in any number ofWestern countries. However, there is also a higher risk of fraud when using mobile money transfers.

When a mobile money transfer fails, the user loses her money. In the US, bank charges will have to be paid. If a user wants to withdraw cash from an ATM in Kenya, she needs to get an advance from her bank. So a single M-Pesa transaction can cost her up to ten times what the bank transaction costs.

The reduced security offered by mobile money transfer is also a major drawback. In Kenya, there are many mobile money transfers that take place. By the time you get your money back, it may be partially or completely gone. Once a scammer has already transferred your money into his own account, it’s gone.

Finally, the reduced control over transaction costs that is provided by mobile money transfer may result in the misdirection of funds. It’s impossible to tell if a certain transaction costs fifty cents or seventy cents.

Of course, none of these issues are insurmountable. A person could work hard to discover alternatives that will serve their needs better.

By the same token, this is not a “Case Study Solution” per se. There are many better ways to serve the needs of the economically and socially excluded.

Forinstance, the growth of a service like M-Pesa may represent a tipping point for a change in policy for the global financial system. Of course, no one can tell exactly what policy will be adopted by the US government, but one thing is clear: those who are excluded from the mainstream financial system will not accept it any longer. There will be many options to provide money transfer services.